Employers are worried that proposals to introduce pensions insurance will drive
up costs and force them to offer lower pension benefits to employees.

Work and pensions secretary Andrew Smith announced last week that the
Government is to set up a compulsory insurance scheme to ensure workers with
final salary pension schemes do not lose what they have contributed if their
employer becomes insolvent.

It would guarantee that people who had already retired would receive 100 per
cent of their pension, while other workers would receive 90 per cent of the
savings they had built up.

Elaine Wood, head of reward and HR at Bradford and Bingley, was concerned
the scheme could bump up costs for business.

She said companies are already having to look very carefully at pension
benefits and she was concerned the scheme could potentially create a vicious
circle.

"If all it does is put up costs, less and less companies will offer
generous pensions benefits, and the Government will be shooting itself in the
foot," she said.

CBI deputy director general John Cridland also cited increased costs as a
potential stumbling block.

"Insurance could be one solution, but the cost of providing
occupational schemes has shot up hugely and anything that adds to that could be
extremely damaging," he said.

The deputy director of employment policy at the Engineering Employers
Federation, David Yeandle, voiced similar worries.

However, Charles Cotton, reward adviser at the Chartered Institute of
Personnel and Development, gave a cautious welcome to the proposals.

"We welcome an insurance scheme that will strengthen the pension
‘brand’. Now we needa proactive pensions regulator who will ensure it is
administered in a sensible fashion," he said.